Worried about retirement savings? Find out how five beneficial IRS tax adjustments for 2022 will help you save more money for retirement and create a stronger financial future.

17 minute read

Hey everyone. And welcome back to the money girl podcast. My name is Laura Adams and I’m a personal finance expert. Who’s been hosting this show since 2008. I’m also the author of several books, including my most recent title, which was a number one, Amazon new release called money, smart solopreneur, a personal finance system for freelancers entrepreneurs and side hustlers. If you’re building a business or want to earn more income, I highly recommend that you get a copy of the paperback ebook or audiobook today. My mission here is to help you get the knowledge and motivation to prioritize your finances, build wealth, and have more security and less stress. Every show is created just for you. So you come away with practical advice and actionable tips to hopefully make some better money decisions and take your financial life to the next level. I hope you’ll subscribe up to the show.

If you haven’t done that already and feel free to participate, many of you will send me your money, questions, or comments. In fact, I’m gonna cover a couple of them today. At the end of the show, you can always do that by leaving me a message 24 7, we have a voicemail line. That’s just for your questions and comments. The number is 3 0 2 3 6 4 0 3 0 8. And you can also email me using my contact page. Laura D adams.com. Don’t forget. We publish a companion blog post for every show that’s located in the money girl [email protected] today’s is number 712 called five retirement account changes for 2022. You should know this is something I look at every year. There are typically changes and I always wanna stay on top of, you know, what are the latest rules and regulations, and so wanted to bring some of the, the main changes that I’m seeing to you in this show.

Uh, and the reason the changes happen is because every year, the United States treasury evaluates what’s happening with inflation in the economy. We’ve been hearing a lot about inflation lately based on that information, the IRS makes changes to various regulations and fortunately many of the upcoming adjustments can help you save more for retirement. So whether you’re just looking for ways to fight inflation or get the most from your retirement accounts, that’s what this show is about. I’m gonna review five retirement account changes that you need to use to your advantage next year. So I hope you’ll stay with me if you’re interested in saving for retirement. And as I mentioned at the end of the show, I’m gonna answer several of your questions. So stay with me. All right. So let’s get into the detail on how you can use the new retirement account rules to max out your contributions and pay less tax.

So the first change that you can expect in 2022 is higher contribution limits for workplace plans. So starting in 2022, if your employer offers a workplace retirement plan, that could be a four OHK or a 4 0 3 B the base amount that you can contribute is going up. It’s gonna go from 19,500, which is the, the rate right now or the limit right now in 2021, it’s gonna go up a full thousand dollars in 2022. So you’ll be able to put in 20,500 at the base level, and this same adjustment applies to most 4 57 plans and thrift saving plans or TSPs. Those apply if you work for the federal or local government. So I want you to make a goal right now to max out your retirement plan by updating your contribution percentage or, or the dollar amount that you put in every pay period. You wanna make sure that you’re kind of backing into that 20,500 number by, you know, kicking up what you’re putting in each paycheck.

So by the end of the year, you know, you’re gonna get really close to that number. You can always make changes to your retirement plan at any time during the year, but in, in most cases you can set a higher contribution rate to begin at a particular time. So you can tell your particular plan that you want that increase to happen on January 1st, let’s say so that’s a great thing to do right now. Go ahead and increase your contribution rate to begin at the beginning of the year. And also it’s worth noting that if you’re over age 50, you can make an additional catch contribution of $6,500 to a workplace retirement plan. Now that’s not new, and that’s the same rate that we’ve had for several years. Uh, but that’s really important because that will bring your annual attribution total to $27,000. If you’re over age 50, all right, the second change you can expect next year is higher income limits for traditional IRA, deductible contributions.

All right, this one gets a little tricky, but stay with me. So let me first say that. Unfortunately, the, a contribution for IRAs is not going up next year. So it’s gonna be the same. You can contribute up to $6,000 or $7,000. If you’re over age 50 and there’s no income limit to qualify for a traditional IRA. So, you know, it doesn’t matter how much you earn. You can have a traditional IRA. However, there’s a little bit of a catch with it. If you or a spouse also contribute to a workplace plan. So a 401k 4 0 3 B 4 57, if you’re participating in one of those plans and you contribute to a traditional IRA in the same year, there’s some limitations. So whether you can claim a tax deduction for those traditional IRA contributions depends on your income. And so that income limit is going up in 2022.

So let me clarify. You can always make traditional IRA contributions when you or a spouse also have a workplace plan. However, some or all of those IRA contributions may just not be deductible. Okay? So you may not get a tax break for them. If you earn over an annual limit, that’s the government’s way of limiting your tax benefit on these plans. So the good news is that the income limit for deducting those traditional IRA contributions is going up. So that’s giving more people the benefit of multiple retirement accounts. So you need to know the income limits by tax filing when you contribute to both a workplace retirement plan and a traditional IRA in the same year. So let me go over those. If you’re single and you’ve got modified, adjusted, gross income or magi for short of at least $78,000, that’s at the point where your IRA contributions are not deductible.

So that is actually an increase of $2,000 from 2021. So again, if you’re single and you’re earning more than about $78,000 of modified, adjusted, gross income, that’s at the point where your deductible IRA contributions are phased out. You’re not gonna get a tax per rate for them when you’re also participating in a workplace retirement plan. Now, if you’re married, you file taxes jointly, and you’ve got household magi of at least $129,000. That’s when your IRA contributions would be non-deductible. And that’s an increase of $4,000 from 2021. Now let’s say you do not have a workplace retirement plan, but your spouse does. And you contribute to a traditional IRA. In that case, your IRA contributions are non deductible. When your household magi is at least $214,000, and that’s an income increase of $6,000 from 2021. So, you know, I know it gets a little complicated, but you know, the bottom line is if you’re a high earner, there are limitations on being able to deduct your traditional IRA contributions.

When you’ve also got a workplace plan that you’re participating in am. So remember that all of these income limits that I just mentioned do not apply. If neither you nor a spouse is covered by a retirement plan at work. In that case, you can always contribute to a traditional IRA and get the full tax deduction. All right, the third change coming in 2022 is higher income limits for Roth IRA eligibility. All right, now we’re gonna switch gears and talk about Roth IRAs, just like with traditional IRAs, the 2022 contribution limit remains at thousand dollars or 7,000. If you’re over age 50 with a Roth, your contributions are never tax deductible because you’ve gotta pay tax upfront on them. And there is an annual income limit to qualify for Roth, IRA contributions. Again, remember with a traditional IRA, there is no annual income limit to qualify, but with a Roth IRA, you cannot be a high earner and participate.

So in 2022, the income limits for Roth IRA, eligibility are going up. That is terrific because more people will qualify for these valuable accounts. The beauty of a Roth is that your withdrawals and retirement are entirely tax free, allowing you to skip taxes on decades of potential investment growth. So let’s go over the magi limits by tax filing status that you need to know to be eligible for a Roth IRA in 2022, if you’re single, you cannot contribute to a Roth IRA when, and you earn more than $144,000. That’s a $4,000 increase from 2021 and married couples filing jointly cannot contribute to a Roth IRA when they have household income above $214,000. That’s a $6,000 increase from 2021. So I, you to consider a Roth IRA, if these higher income thresholds now make you eligible, unlike a traditional IRA, you can max out both a Roth IRA and a workplace retirement plan in the same year without any tax conflicts.

So the Roth IRA does not, you know, any limits placed on it like the traditional IRA does when you’re also participating in a retirement plan at work. So that’s a great reason to have a Roth IRA when you’ve also got a, you know, a really nice retirement plan at work. And the fourth change to watch out for in 2022 is higher income limits for the savers credit. So based on your income and some other requirements, you may qualify for the savers credit. This is also called the retirement savings contribution credit. It’s a tax break for those with low income who contribute to a retirement account. And for 2022, the income limits are going up as follows singles have to earn less than $34,000. That’s an increase of a thousand dollars from 2021 heads of households must earn less than 51,000. That’s a $1,500 increase from 2021.

And married couples filing jointly must earn less than 68,000. And that is a $2,000 increase. So those are the income levels that, you know, you need to be under in order to qualify for the savers credit. And that’s something that you would indicate on your tax return. Uh, and so if you’re not sure if you are taking advantage of that, you may wanna get some help from a tax professional in Q1 of 2022, to make sure that you’re taking advantage of the savers credit. All right, the fifth change coming in 2022 is higher contribution limits for retirement accounts for the self-employed. So you may have heard me talk about a couple of different accounts for those who have self-employment income. One of them is the solo 401k, and another is a SEP IRA. These are the two, probably most popular retirement accounts for self-employed people. And in 2022, the contribution limits are going up to $61,000 from 58,000 in 2021. And if you’re over age 50, there’s a $6,500 ketchup contribution, allowing total contributions of $67,500. So that’s great news for solopreneurs and small business owners who are, you know, making at least those amounts of income and wanna suck away more for retire. This podcast. Isn’t a complete list of everything that’s changing related to retirement in 2022, if you wanna learn more, you can always visit. I rs.gov

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All right, now let’s turn are questions. The first one is from Kristen a who says I listen to your podcast and I’ve gotten lots of great info. I’m hoping you can answer my question or discuss options for where to keep a rainy day fund. There must be a better place for it than the current quote, high interest savings accounts. Mine has a rate of 0.4%. I know emergency money. Can’t be invested into anything risky like stocks, but what about into savings bonds? Recently, I saw that us treasury series, I bonds have a 7.1, 2% interest rate. Would it make sense to put half my rainy day fund or $10,000 into one, which is the limit? I’m not entirely sure how saving bonds work, but from what I read, it seems that they never lose value. And if cash in early, you can still get some interest, but not all of it.

That seems better than the 0.4% I’m getting in the high interest savings account. Kristin, thank you so much for your question. This is a, a great one. And let me just talk a little bit about what the savings bond is. So in general, a savings bond is a low risk investment. That’s backed by the us government and you buy it through the us department of treasury and you can learn [email protected] So right now you can buy two types of savings, bonds, there’s series EE, and there’s series. I bonds. I stands for inflation, and that’s what I’ll talk about. Both of them earn interest over time, up to their date of maturity, which is 30 years. So if you buy a bond, you’ve gotta wait at least 12 months from the date of purchase to cash it in or get any amount of it back. Um, there is one exception, which is if you’re affected by a natural disaster, but in general, you cannot touch the money for at least a year.

So you wanna keep that in mind. And if you cash out any out after one year up to the five year mark, there’s a penalty you’re gonna lose three months of your prior months interest. And if you hold the bond for longer than five years, there is no penalty to redeem it. But if you hold it for the full 30 years, you’re gonna get the maximum interest. So here’s how it works for the first six months that you own an I bond sold from November, 2021 through April, 2022, it’s gonna earn interest at an annual rate of 7.1, 2%, as Kristen said, and then a new rate gets set every six months based on inflation. So if inflation is increased, then we’re gonna see that, um, that I bond rate increasing as well. Now, when you buy a bond, you pay the face value. So let’s say you want a $50 bond.

You pay $50 for it. And then the bond is gonna increase in value as it earns interest over time. And there are two ways that you can buy. I bond, uh, either less electronically or get paper bonds. If you buy them electronically, you simply go to the site. I mention treasury direct.gov, and they come in any amount to the penny for $25 or more. So for example, you could buy a bond for, you know, $50 and 21 cents. If you wanted for paper bonds, they work a little differently. You can use your federal income tax refund to buy them. And they’re sold in five denominations, only either 50 bucks, a hundred, 200, 500 or thousand dollars. And in a calendar year, you can buy up to $10,000 in electronic IBOs, or you can get up to $5,000 of paper IBOs using your federal income tax refund.

So the $10,000 limit is what Kristen mentioned, being the maximum that she could get online. So again, if you buy an I bond, you’re not gonna be able to touch that money for at least 12 months. Is it a good idea for emergency funds? I would say if you’ve got plenty of emergency funds, you’ve got more than the recommended six months worth of your living expenses. If you’ve got more than that amount, I would say, yes. It’s probably a wise idea to look at some alternatives like the IBOs, but if you don’t have, I would say at least three months worth of your savings, you don’t wanna tie it up for a year. You want that money to be available to you tomorrow. You know, if you need it for any type of emergency. So it really does depend on how much emergency money you need and how much you’ve already got saved.

If you’re at all concerned that you don’t have enough, I would stay away from the bonds or the CDs or anything. That’s tying it up. But if you feel pretty confident about it, yes, I would say, go ahead and, you know, buy an I, uh, it, it might be a great option for you. All right, Kathy M says, I’m a long time. Listener, love your podcast. My husband and I have followed your suggestions for all these years. We built a family, bought our first home, paid extra on the mortgage. Every month, we both contribute 15% towards our 401k and receive matching. We’ve got a healthy emergency C fund. We have life insurance and 5 29 S for our children, which we contribute to regularly. It seems we’re on the right track financially in our mid to early forties. At this point, would you recommend, we invest in a second vacation home as part of our nest egg.

What is the tax advantage or disadvantage of having a, a second home? Is it a good investment? Thank you in advance, Kathy. Thanks so much for your question and congrats on being in such great financial shape in your early forties. My opinion on vacation homes is that they can be good investments. You can certainly buy a property that will increase in value you over time. However, it is an ongoing expense. So you want it to truly increase your lifestyle. I know a lot of people who can afford vacation homes, but don’t buy one because they don’t wanna feel pressured to visit it every year. And also have the upkeep, uh, far away from home. They’d rather vacation in different places, but if you know that your family would get plenty of use from a vacation home, it can be a wonderful getaway. And it sounds like you can certainly afford it with tax benefits.

Uh, one pro is that as long as you don’t rent out a second home for more than 14 days each year, you can deduct the mortgage interest that you pay on it up to a limit. So the cap is interest that you pay on up to $750,000 of debt. That’s on both your first and or second homes combined. So, you know, that’s definitely gonna give you some additional interest to write off. You can also deduct property taxes on your first and second homes. However, the total is limited to $10,000 per tax return, and many people who buy a second home may already exceed that limit with their first home. So if that’s the case, you may not see any additional tax savings from the second home. And if you decide to rent out a vacation home for more than 14 days per year, it turns into more like a business.

You’ve got to report the rental income to the IRS, but you can still deduct some of the mortgage in trust and rental expenses, such as your insurance and utilities for the portion of time that you rent the house out. So calculating the deduction gets a little complicated because you’ve gotta determine how much of those costs are allocated to when you were there. And when you were leasing out the property, one of the biggest benefits that you get on real estate is the capital gains tax exclusion. This says, if you sell your primary residents, singles can exclude up to $250,000 in capital gains from the income and couples who file taxes jointly can exclude twice that much up to half a million dollars in capital gains. However, that benefit is only for your primary residents. So when you sell a second home, you do have to pay a capital gains tax on your entire profit.

So I wouldn’t consider that a con for having a vacation home. It’s just a normal part of selling an asset that goes up in value. The bottom line is that I wouldn’t let the tax pros or cons sway you significantly. What I would do is add up all of your estimated annual costs for that property. So the mortgage insurance taxes and maintenance try to get as much of a, you know, a handle on what that number is as possible as you’re shopping around, or just considering properties in a given area and consider whether you would really enjoy using that property enough to make it worthwhile. Thank you so much to Kristen and Kathy for sending in your questions. I hope the answers will help if you all are on social media, I would love for you to connect with me on Twitter. I’m at Laura Adams on Instagram, I’m at Laura D. Adams.

And as I mentioned, Laura D adams.com is my personal site where you can use my contact page and learn more about my work books and money courses. And if you haven’t joined my private Facebook group, I would love you to do that. It’s called dominate dollars. It’s a fantastic group. You can search for it on Facebook. Again, it’s dominate your dollars. We’d love to have you in the group. That’s all for now. I’ll talk to you next week. We have a very special year end show plan for you. So until then, here’s the living a richer life money girl is a quick and dirty tips. Pop it’s audio engineered by Steve Ricky bird with editing by Adam Cecil. Our operations and editorial manager is Michelle Marus. Our assistant manager is Emily Miller and our marketing and publicity assistant is Devina Tomlin

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Every year, the U.S. Treasury evaluates what’s happening with inflation in the economy. Based on that data, the IRS must make changes to various regulations. Fortunately, many upcoming adjustments can help you save more for retirement.

So, whether you’re looking for ways to fight inflation or get the most from your retirement accounts, that’s what this post will cover. I’ll review five retirement account changes coming in 2022, so you can use them to your advantage.

5 Retirement Account Changes to Expect in 2022

  1. Higher contribution limits for workplace plans.
  2. Higher income limits for traditional IRA deductible contributions.
  3. Higher income limits for Roth IRA eligibility.
  4. Higher income limits for the Saver’s Credit.
  5. Higher contribution limits for retirement accounts for the self-employed.

Here are the details on how you can use the new retirement account changes to max out your contributions and pay less tax.

1. Higher contribution limits for workplace plans.

Starting in 2022, if your employer offers a workplace retirement plan, such as a 401(k) or 403(b)target=”_blank” rel=”nofollow sponsored”, the base amount you can contribute increases from $19,500 to $20,500. The same adjustment applies to most 457 and Thrift Savings Plans (TSPs) if you work for the federal or local government.

So, make a goal to max out your retirement plan by updating your contribution percentage or dollar amount per pay period. You can make changes to your plan at any time during the year. In most cases, you can set a higher contribution rate to begin at a particular time, such as on January 1 each year.

Although this isn’t new for 2022, it’s also worth noting that if you’re over 50, you can make an additional catch-up contribution of $6,500 to a workplace retirement plan, bringing your annual total to $27,000.

2. Higher income limits for traditional IRA deductible contributions.

Unfortunately, the base contribution or catch-up limit for IRAs is not going up in 2022. You can contribute up to $6,000 or $7,000 if you’re over age 50. There’s no income limit to qualify for a traditional IRA.

However, if you or your spouse contribute to a traditional IRA and a workplace retirement plan in the same year, whether you can claim a tax deduction for your IRA contributions depends on your income. And that income limit is going up in 2022.

To clarify, you can always make traditional IRA contributions when you (or a spouse) also have a workplace plan; however, some or all of your IRA contributions may be nondeductible if you earn over an annual limit. That’s the government’s way of limiting your tax benefit on these plans.

But the good news is that the income limit for deducting traditional IRA contributions will increase in 2022, giving more people the benefit of multiple retirement accounts.

You need to know the income limits by tax filing status when you contribute to both a workplace retirement plan and a traditional IRA in the same year.

If you’re single and have modified adjusted gross income (MAGI) of at least $78,000, your IRA contributions are nondeductible. That’s an income limit increase of $2,000 from 2021.

If you’re married, file taxes jointly, and have household MAGI of at least $129,000, your IRA contributions are nondeductible. That’s an increase of $4,000 from 2021.

Let’s say you don’t have a workplace retirement plan, but your spouse does, and you contribute to a traditional IRA. In that case, your IRA contributions are nondeductible when your household MAGI is at least $214,000. That’s an income increase of $6,000 from 2021.

Remember that these income limits don’t apply if neither you nor a spouse is covered by a retirement plan at work. You can always contribute to a traditional IRA and get a full tax deduction.

3. Higher income limits for Roth IRA eligibility.

Now, let’s talk about Roth IRAs. Just like with traditional IRAs, the 2022 contribution limit remains $6,000, or $7,000 if you’re over age 50. With a Roth, your contributions are never tax-deductible because you must pay tax upfront on them. And there is an annual income limit to qualify for Roth IRA contributions.

In 2022, the income limits for Roth IRA eligibility are going up. That’s terrific because more people will qualify for these valuable accounts! The beauty of a Roth is that your withdrawals in retirement are entirely tax-free, allowing you to skip taxes on decades of potential investment growth.

Here are the MAGI limits by tax filing status you need to know for Roth IRA eligibility in 2022.

  • Singles can’t contribute when they earn more than $144,000. That’s a $4,000 increase from 2021.
  • Married couples filing jointly can’t contribute when they have a household income higher than $214,000. That’s a $6,000 increase from 2021.

Consider a Roth IRA if these higher income thresholds make you eligible. Unlike a traditional IRA, you can max out both a Roth IRA and a workplace retirement plan in the same year without any tax conflicts.

4. Higher income limits for the Saver’s Credit.

Based on your income and other requirements, you may qualify for the Saver’s Credit, also called the Retirement Savings Contributions Credit. It’s a tax break for those with low income who contribute to a retirement account.

For 2022, the income limits are going up as follows:

  • Singles must earn less than $34,000, which is an increase of $1,000 from 2021.
  • Heads of households must earn less than $51,000, a $1,500 increase.
  • Married couples filing jointly must earn less than $68,000, a $2,000 increase.

5. Higher contribution limits for retirement accounts for the self-employed.

A solo 401(k) and a SEP-IRA are two popular retirement accounts for the self-employed. In 2022, the contribution limits are increased to $61,000 from $58,000. And if you’re over age 50, there’s a $6,500 catch-up contribution, allowing total contributions of $67,500. That’s great news for solopreneurs and small business owners who want to sock away more for retirement.

This post isn’t a complete list of all the retirement-related tax changes coming in 2022. To learn more, visit IRS.gov.

This article by Laura Adams originally appeared on Quick and Dirty Tips.

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About the Author

Laura Adams, Quick and Dirty Tips

Laura Adams, Quick and Dirty Tips

Laura Adams is an award-winning author of multiple books, including Money Girl’s Smart Moves to Grow Rich. Her newest title, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, is an Amazon No. 1 New Release. Laura’s been the writer and host of the popular Money Girl Podcast, a top weekly audio show in Apple Podcasts, since 2008. She’s a frequent source for the national media and has been featured on most major news outlets including NBC, CBS, ABC FOX, Bloomberg, NPR, The New York Times, The Wall Street Journal, The Washington Post, Money, Time, Kiplinger’s, USA Today, U.S News, Huffington Post, Marketplace, Forbes, Fortune, Consumer Reports, MSN, and many other radio, print, and online publications. Millions of readers and listeners benefit from her practical financial advice. Her mission is to empower consumers to live richer lives through her podcasting, speaking, spokesperson, teaching, and advocacy work. Laura received an MBA from the University of Florida. Visit LauraDAdams.com to learn more and connect with her.

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